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What Is "A Government Sovereign In Its Own Currency"?

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Deficit hawks in the United States envision a day when the United States Government will go broke, unless we curb government spending on entitlements. Well, governments can go broke in the sense that they can run out of money they need to pay their debts. But not all governments. Only governments whose monetary systems are commodity-based, such as those on the gold standard; those using fiat money, whose official fiat currency is issued by supra-ordinate authorities, and those who owe debts in a fiat currency issued by another governmental authority, can go broke.

But governments issuing their own fiat currency, subordinate to no higher authority, and owing no debt to anyone else in a currency other than its own can never go broke, or put another way, become insolvent. Because all they need to do to spend money is to issue credits to non-governmental sector accounts in banks, and all they need to do to pay back other Governments who have lent them their own currency, is to credit the accounts of the lender Governments in that currency, an action which they have full authority to do, absent any political constraint they have placed on themselves. We call such Governments “sovereign” in their own currency. And because they have this kind of sovereignty, they also have flexibility to facilitate economic activity to accomplish public purposes that Governments without that kind of sovereignty don't have. But with that fiscal flexibility also comes fiscal responsibility – the responsibility to use the operationally unlimited spending power of an economically sovereign government to use that spending power for public purpose and not for private gain.

One of the Governments that fit these criteria and so can never go broke is the US Federal Government. Other common examples are Japan, Australia, New Zealand, Canada, Brazil, Argentina (though it was not always so), and the UK. Governments that don't fit these criteria and that can go broke include the nations of the EU, such as Greece, Portugal, Spain, and Italy. Even France and Germany can go broke, since they no longer issue their own currency. Other examples include all those developing nations with loans from the IMF, the World Bank, and other international authorities that must be paid back in US Dollars, a currency they cannot issue; as well as state, local, provincial, and other governments subordinate to a super-ordinate currency-issuing authority such as California.

Most governments that are sovereign in their own currency haven't been fiscally responsible in a very long time. While some have performed better than others in seeking and achieving public purposes, most have continued to act as if they are constrained by the gold standard, and have attempted to either reduce spending at the expense of the less well off, or to fail to pursue programs for full employment, or to fail to make enough investments that will fulfill other public purposes. In most of these cases, deficit hawkism and specifically the desire to either reduce deficits, or to balance budgets, has trumped the desire to fulfill public purposes.

In short, governments sovereign in their own currencies have been acting like governments on the gold standard, or those who owe debts in currencies they don't issue. They have been acting in a fiscally irresponsible way given their fiat monetary systems, while at the same time claiming to be fiscally responsible. They can get away with this, because very few people make the distinction between governments sovereign in their own currency and governments that are not. And even fewer go on to recognize that what may be fiscally responsible for gold standard governments, or governments that are not economically sovereign, is most certainly fiscally irresponsible for economically sovereign Governments.

In systems where governments are economically sovereign like the United States, it is a big mistake to measure how the nation is doing by using deficit, the national debt, or debt-to-GDP ratios. Those measures, in fact, are the wrong things to measure, since the government is a scorekeeper that can always credit accounts when it needs to spend or pay what it owes or even set interest rates by flooding the market with reserves and driving short-term interest rates down to zero. In such systems, the money is always there for the non-governmental sector, not in the sense that the government has accumulated some physical stock of it, but in the sense that the Government can always spend or pay back by crediting accounts, regardless of any physical stock it may have.

In such systems, fiscal responsibility is not about what the Government has accumulated either in debt or in surpluses, what it is about, however, is the Government's success in spending on worthwhile things that produce actual value, rather than spending on worthless outcomes.

Issues about governments sovereign in their own currencies, as well as many others will be addressed, and answered at the Fiscal Sustainability Teach-In Counter-Conference. It will be the answer to the Administration's latest attempt to orchestrate a political process that will result in transferring more wealth from the middle class and the poor to the very well-off and the corporations.

Bloggers are picking this event up all over the netroots as are PR services. There's also quite a twitter buzz about this. Search on "fiscal sustainability" and you'll see it.

On Sunday night or Monday, perhaps before, a front page post at The Huffington Post by Lynn Parramore, will contain brief common sense statements by 8 economists, 7 of whom are speakers at the Conference on the primary myths in fiscal sustainability. Don't miss that post. Don't miss the Teach-In Counter-Conference. Help if you can. Follow-up afterwards by watching the youtubes and the documentary therealnews.com will be making about the event.

Let's make this the start of a movement that sweeps The Peterson Foundation, and the deficit hawks aside, and that forces this Administration to end this recession and rebuild our nation. Here's the event web site with all kinds of information about it, our speakers, the issues being addressed, press releases, schedules, location, associated blogs and so on.

Comments

I know that times aren't so good, and many of you have already helped send me to the Teach-In (for which I am very grateful).

That said, the legacy parties and tout de Versailles are hell bent on cutting Medicare and Social Security ("entitlement reform") -- whether the deficit hawks, who are in favor a "slitting the throat" approach, or the deficit doves, who are in favor of the "slow bleed" approach.

The concept should not be to tinker around the edges and pre-compromise for the "least bad" approach; we tried that on HCR (Higher Corporate Returns) and look where it got us.

One thing that we can and should do is assault the ideology on which both deficit birds agree: That a government, sovereign in its own currency, can go bankrupt, and that deficits matter to the state in the same way that debt matters to a household. Both propositions are false in fact and wrong in theory.

And that's what the Fiscal Sustainability Teach-In Counter-Conference does -- we're the assault team.* So, if you can help the conference at all, please do so using the widget at right. It's a fucking miracle that a tiny team of mostly Correntians has been able to organize this thing on less than a shoe-string, but it's going to be even more of a miracle if we can manage to fully fund the only Counter-Conference to the Peterson wankfest that's (a) physically in DC and (b) free and open to the public. So click that widget.

NOTE * Purely in the realm of ideas (and narratives) of course.

NOTE When you think about it, it's pretty amazing that a conference that's within one degree of separation from the blog that everybody hates and nobody reads got support from Act Blue. So, again, click that widget.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Add $225 to the $4420. That's what I have in the Cart. So that's $4645. Next thing to do is to pay attention to the HuffPo article by Lynn Paramore on the Conference. We've got to buzz that one up. It could help us with fund raising.

I posted one little comment on a blog by Dean Baker, and got a "new fan" (lol, my first), and the promise of a donation. There is a pent-up demand for the ability to ACT on a push-back to those who would sweep the last crumbs off the tables of the poor and elderly and newly-to-be-poor ex-middle class, only to make bread pudding for themselves. We must push for contact, then reading/understanding, and support, in all ways, including donations!

It would be nice if we could develop a cross-blog solidarity network where we would agree to support and publicize activist initiatives undertaken by each other.

I've done what I can by getting postings and/or links to the conference front paged on the Progressive Review and Counterpunch. I've also posted comments to A Tiny Revolution, Dean Baker's Beat the Press, Krugman's Blog and a few others.

They should be front paging the conference and might do so if we had made an agreement that we would do the same for them.

It occurs to me this kind of thing could be arranged in a kind of alternative blogger summit-a non-access netroots nation, as it were.

The focus of the conference will be a topic which, as a member of Blue Dog caucus, is of central concern to you, namely the budget deficit. While the presentations will, for the most part, be based on very different assumptions from what deficit hawks take for granted, I believe it is your obligation to be exposed to the full range of views on these matters, including those which have proven, in recent years to be far more in accord with reality than those of the mainstream.

Whether or not you agree with them, I believe you will be impressed with the level of participants in the conference, several of whom are fellows at Bard's Levy Institute which, as you know, is located in your district.

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